How Much Do the Central Bank Announcements Matter on Financial Market? Application of the Rule-Based Trading System Approach

Brzeszczyński, Janusz, Gajdka, Jerzy, Schabek, Tomasz and Kutan, Ali M. (2021) How Much Do the Central Bank Announcements Matter on Financial Market? Application of the Rule-Based Trading System Approach. Expert Systems with Applications, 182. p. 115201. ISSN 0957-4174

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Official URL: https://doi.org/10.1016/j.eswa.2021.115201

Abstract

This paper proposes a rule-based trading system to investigate how much the central bank’s announcements matter on a financial market. We design a novel investment strategy and we simulate trades in order to quantify their profitability in the out–of–sample period using the data from a broad financial market in Poland spanning across 3 segments: stock market, foreign exchange market and bonds market.

Our results show that the individual transactions delivered profits in 72.7% cases. The overall profitability across all events and all trading horizons was positive in as many as 63.6% cases.

Although the financial market in Poland was only moderately sensitive to the NBP central bank’s communication, the identified types of the monetary policy announcements are economically significant and very useful for the investors, who can trade based on them and exploit them directly in the design of the rule-based trading strategies.

Item Type: Article
Additional Information: Funding information: This work was supported by the research funding from the Narodowe Centrum Nauki (NCN) / National Science Centre (NSC) in Poland (project number: 2015/19/B/HS4/03238)
Uncontrolled Keywords: Rule-based trading system, Central bank, Monetary policy, Stock market, Foreign exchange market, Bonds market
Subjects: N100 Business studies
N300 Finance
N400 Accounting
Department: Faculties > Business and Law > Newcastle Business School
Depositing User: Elena Carlaw
Date Deposited: 26 May 2021 10:40
Last Modified: 11 Aug 2021 13:45
URI: http://nrl.northumbria.ac.uk/id/eprint/46285

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